The principal is defined as the total sum of money (amount) borrowed or lent. It’s often referred to as the initial amount of money received from a loan or money invested.

The principal amount can change when any interest is capitalized onto the original principal amount.

With mortgages, the principal amount is the money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of the principal made.